TMI Blog2020 (4) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... be automatically applied to every import which has surface features of a turnkey contract. Just because different components of a contract or multiple contracts give the shape of turnkey project to the imported items, without specific finding on existence of condition as contemplated in clause 9 (1) (e), value of all these components could not be added to arrive at the assessable value. Such an exercise would go against the provisions of Interpretative Note to Rule 4, which is part of the Valuation Rules in view of the provisions of Rule 12 thereof. In the present appeal, involving two import consignments, the authorities of First Instance and the Appellate Authority proceeded on the basis that since all the scheduled items formed part of the same contract and were linked with activities at post-import stage with the imported equipments, the provisions of Section 9 (1) (e) could be invoked. Such reasoning infers subsistence of conditions for awarding post-importation work to the overseas consortia or makes import of both sets of items otherwise interdependent - the stand of SAIL was consistent that the subject drawings and specifications did not relate to the equipments import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.5.3A Spares for two years operations and maintenance, insurance spares, special tools and tackles. 0.537 3.5.4A Foreign Supervision charges during manufacture of Indian equipment as well as for erection, commissioning and performance guarantee tests. 0.675 (quoted from the order in verbatim). In addition to this, contract price of ₹ 186,144,000/- and a royalty of ₹ 10 per tonne of thermax bars produced during first five years of operation was also to be paid to the Indian entity of the consortium under the contract for supplies and services made by the latter. So far as the second contract is concerned, the scope of supplies and services to be effected by the consortium appears from the following part of the third schedule, which again has been reproduced in the second order (bearing no.544-9/91A SVB) of the authority of first instance, dated 1st June 2001:- Schedule No. Description Millions [I] [M] 3.5.1.1. [ii] basic des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir manufacture. But designs and drawings specified in the schedule were all post-importation project related and project implementation activities. The customs authorities on the other hand added the basic design and engineering fee of DM 2.23 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of 0.675 million to the invoice value. In respect of the second contract, direction was made for addition of basic design and engineering fee of DM 6.65 million, as built drawings of DM 0.1 million and supervision charges during manufacture of Indian equipments and for erection, commissioning and performance guarantee tests of DM 2.842 million to the invoice value. The dispute had reached the Commissioner of Customs for Special Valuation Branch, the authority of first instance, after a questionnaire was sent to SAIL, which was responded to. The authority of first instance heard the representative of SAIL. In the final orders, the authority of the first instance directed the aforesaid additions. The said authority observed that the contractor was entrusted with the work on a turnkey basis, where the entire s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted equipments under Rule 4 of the Valuation Rules read with Section 14 of the said Act? [Appeal No. C-1/2002] 7. The Tribunal held that the drawings and technical documents related to post importation activities for assembly, construction, erection, operation and maintenance of the plant and those items could not be included in the value of imported goods. Referring to Rules 9 (1) (b) (iv) and 9(1) (e) of the Valuation Rules 1988, the Tribunal held:- Similarly reliance upon the decision of the Supreme Court in Collector of Customs (Preventive), Ahmedabad Vs. Essar Gujarat Ltd., 1996(88) ELT 609 (SC) is also completely misplaced. From the judgment of the Supreme Court it would be seen that what has been held to be added therein under Rule 9(1) (e) of the Valuation Rules and process license fee, the payment for transfer of technology under the process license agreement and whatever expenditure was needed to be incurred for dismantling the plant which was sold on as in where is basis in the foreign country and making it ready for delivery on board the vessel to be exported to India. The Supreme Court specifically held that apart from this all other services rendered und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1988. This also the Deputy Commissioner and the Commissioner (Appeals) failed to appreciate and/or take into consideration and thereby arrived at patently erroneous finding. In terms of Rule 9 [1] [b] [iv] of the Valuation Rules, 1988, in determining the transaction value the value apportioned as appropriate of, inter alia, engineering, design and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods which were supplied directly or indirectly by the buyer free of charge or at a reduced cost to the supplier or imported goods for use in producing the imported goods being value are to be included. This is because such supply of free of charge or at a reduced cost would result in a lower price for the imported goods than the price that the supplier would have charged if such goods/services were to be paid for in full. This rule is also inapplicable in the instant case as there has been no supply or any engineering s or drawings by the appellant to the foreign seller. Moreover, there was no supply free of charge or at reduced cost. Hence this rule also has no applicability whatsoever in the present case. (quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficial Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. (3) For the purposes of this section- (a) rate of exchange means the rate of exchange- (i) determined by the Board, or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency; (b) foreign currency and Indian currency have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999). Rule 4 and Rule 9 of the 1988 Rules 4. Transaction value. (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these rules. (2) The transaction value of imported goods under sub-rule (1) above shall be accepted: Provided that- a. The sale is in the ordinary course of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstitute value shall not be established under the provisions of clause (b) of this sub-rule. 9. Cost and services. (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,- (a) the following cost and services, to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) commissions and brokerage, except buying commissions; (ii) the cost of containers which are treated as being one for customs purposes with the goods in question; (iii) the cost of packing whether for labour or materials; (b) the value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid of payable, namely :- (i) materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e free on board value of the goods plus cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125 % of the free on board value of the goods plus cost of transport for clause (iii) above]. (3) Additions to the price actually paid or payable shall be made under this rule on the bases of objective and quantifiable data. (4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule. 9. The main case of the appellant is that these two cases involved importation of turnkey projects and the entire contract value have to be treated as the transaction value for the purpose of charging customs duty. Mr. Agarwal has submitted that the design and the other items, which were the subject of dispute, were integrally linked with the equipments and supply of the services were conditions for importation of the equipments. It has also been argued on behalf of the revenue that the contracts were integrated from basic planning and designing till implementation at site and what was imported was a project and not merely equipments. On this count, our attention was dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, Davy Mckee (Stockton) Limited. In pursuance of that contract, Davy were to provide basic design and drawing and also supervise the detailed engineering erection and commissioning of the gas cleaning plant in India apart from training of personnel abroad. The fabrication, manufacture etc. however was to be done in India with indigenous goods based on designs supplied by Davy. The contract amount was 20,00,000 and charges for design and engineering, supervision in India during design, erection, commissioning and performance guarantee test valued at 6,57,900 and training charges of 82,600 were to be paid separately. Relying on a decision of this Court in CC (Prev.), Ahmedabad vs. Essar Gujarat reported in [(1997) 9 SCC 738], the Tribunal found in the order reported in 1999 (112) ELT 479(T):- 6. The payment of $ (sic) 6,57,900 noted above in the price schedule is towards the services indicated above in the Agreement and which is a necessary concomitant to the supply of Design and Engineering drawings for the gas cleaning plant made by Davy Mckee and imported by the appellants. The appellants have been entrusted with the setting up of gas cleaning plant, and this could on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts or by way of inter-state trade and hence covered by the Central Sales Tax Act. The only factual similarity in both these cases is that the case of ABB Limited (supra) also related to turnkey project. But import under that statute and the charging section in the Customs Act for imposing duty (under Section 12) are not the same. The mechanism for arriving at transaction value or assessable value under the two statutes are different and distinct. This authority can have no impact on the subject-controversy. 14. The appellant s case in substance is that on a composite reading of Section 14 of the Act, Rules 4 and 9(1)(e) of the 1988 Rules, the price of drawings, design etc., should be added to the invoice value of the imported equipments, as those intangible items formed an integral part of the arrangement agreed upon between the two consortia and SAIL. The revenue described such arrangement as turnkey contracts. It has been specifically argued that such intangible items constituted conditions of sale within the meaning of Rule 9(1)(e) of the 1988 Rules and these are not post importation charges. 15. Stand of the respondent, on the other hand is that those items related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value. 16. Learned counsel for the respondent relied on the following authorities in support of his submissions: 1. (2015) 8 SCC 175: Commissioner of Customs Vs. Essar Steel 2. (2000) 3 SCC 472: M/s Tata Iron Steel Co. Ltd. Vs. CCE 3. (2007) 9 SCC 401: Commissioner of Customs Vs. J.K. Corp. Ltd. 4. (2015) 14 SCC 750: Commissioner of Customs Vs. Hindalco Industries 5. (2015) 16 SCC 506: Commissioner, Customs Vs. Denso Kirloskar Industries 6. (2007) 5 SCC 371: Commissioner of Customs Vs. Toyota Kirloskar 7. (2008) 4 SCC 563: Commissioner of Customs Vs. Ferodo India (P) Ltd. 17. In the case of Essar Steel Limited (supra), there were two contracts with the overseas exporter. One was a purchase order for setting up of a plant. The other was between Met Chem Canada Inc. with Essar Ltd. to associate the former as a technical consultant to render technical services in relation to implementation of a project to set up a plant in India for manufacture of hot rolled steel coils in India. The technical service agreement was in relation to implementation of the project. The revenue had taken the stand that customs duty was to be imposed was on both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other notices preferred appeals before the Customs, Excise and Gold (Control) Appellate Tribunal, Calcutta which have been disposed of by a common order. The Tribunal has held that the three contracts entered into between the seller, i.e., SNP and the appellant were in fact parts of one package, that is, the three constituted one composite agreement. The technical documentation supplied to the appellant could be divided into three parts: (i) those pertaining to the imported equipment, (ii) those pertaining to the equipment which has yet to be procured or manufactured by the appellant, and (iii) those relatable to post-import activities undertaken by the appellant for assembly, construction, erection, operation and maintenance of the imported equipment. The value of the contract to the extent of (i) above was liable to be included in the value of equipments and materials imported by the appellant though the value of the technical documents covered by (ii) and (iii) above could have been excluded for payment of customs duty by reference to the Interpretative Note to Rule 4 of the Customs Valuation Rules, 1988 (hereinafter the Rules , for short). However, since separate values have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Note to Rule 4 is suggestive of charges for services rendered by the seller in connection with construction, erection etc. of imported goods. The value of documents and drawings etc. cannot be charges for construction, erection, assembly etc. of imported goods. Alternatively, even on the view as taken by the Tribunal on this Note, the drawings and documents having been supplied to the buyer-importer for use during construction, erection, assembly, maintenance etc. of imported goods, they were relatable to post-import activity to be undertaken by the appellant. Such charges were covered by a separate contract, i.e. contract MD 301. They could not have been included in the value of imported goods merely because the value of documents referable to imported equipments and materials was mixed up with the value of those documents which were referable to equipment which was yet to be procured or imported or manufactured by the appellant; the value of the latter category of documents also being neither dutiable nor clubbable with the value of imported goods. The Tribunal has not doubted the genuineness of the contracts entered into between the appellant and SNP. Rather it has observed v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This may confer on such arrangements attributes of a turnkey contract, but that fact by itself would not automatically attract the condition clause contained in Rule 9(1) (e) of the Valuation Rules. In the cases of Essar Steel Ltd.(supra) and Tata Iron and Steel Co. Ltd.(supra), the contracts had certain elements of turnkey features. The case of Essar Gujarat (supra) is distinguishable, as the subject of import there carried a condition for entering into a licensing agreement with a third party. 23. This decision was considered by this Court in Essar Steel (supra) and Essar Gujarat (supra). It was explained by this Court in the case of Essar Steel (supra) in paragraphs 17 and 18 of the report: 17. The Court held that the amount of 20 lakh Deutsche Marks and 101 lakh Deutsche Marks were both payable for the right to use Midrex process and patents. In short, these amounts were payable for the transfer of technology under a process licence agreement entered into with Midrex. The judgment states that without such licence the plant could not be operated at all by the importer without the technical know-how from Midrex. In any case, the plant could not be operated or be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is excluded application of clause 9 (1) (e) of the 1988 Rules. In this regard interpretative note to Rule 4 was relied upon. Reference was made, in particular, to clause (a) of that Note. 25. Revenue has not made out a case that the disputed items of contract do not relate to post-importation activities. The statutory provision relied upon by the Revenue to bring the subject-items within the duty net is Rule 9 (1) (e) of the 1988 Rules. 26. The expression condition , simply put, conveys the idea that something could be done only if another thing was also done. In the given context, it would imply that import of equipments could be allowed by the other party provided the design features for post-importation activities were also obtained from the same supplier or from a firm as per the overseas supplier s direction. But there is no material before us to suggest that import of equipments was effected with simultaneous obligation of SAIL that the designs relating to post-importation activities should also be obtained from the same entity. The revenue has proceeded with the understanding that since both were obtained from the same vendor, condition of obtaining designs etc., for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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